INVESTMENT COMMENTARY — Mini-tenders hit the mining industry

It’s hard to imagine why any investor would sell shares at discounted prices when they could easily realize better prices on the open market. Yet enough are selling to keep a Phoenix-based firm busy expanding its “mini-tender” business to include a who’s-who of mining companies.

IG Holdings, headed by Phoenix resident Ira Gaines, has offered to buy shares of numerous companies at below market prices in the past six months. Its targets have ranged from ice-cream companies to bus lines, with a favourite being mining companies.

Homestake Mining (HM-N) recently advised its shareholders to reject a below-market tender for up to 1% of the company at US$6.88 per share. Homestake shares are currently worth between US$7.50 and US$8.

The latest target, Asarco (AR-N), has advised its shareholders to reject a below-market tender for up to 2% of the shares at a price of US$13.25 — a 22% discount to the market price.

Mini-tenders have been offered for shares of Newmont Mining (NEM-N) and Ashanti Goldfields (AHD.U-T), this time by IG Holdings’ affiliate, Bezira Gold. A Newmont spokesman called the practice “underhanded,” yet admitted there is no way to prohibit the activity, except by educating shareholders.

Other companies have also been targeted, including Barrick Gold (ABX-T), Cambior (CBJ-T), Inco (N-T) and Battle Mountain Gold (BMG-N). However, offers have not yet been made for companies listed only on Canadian exchanges.

The efforts of IG Holdings have spawned copy-cats. Placer Dome (PDG-T), for example, received an unsolicited bid from Irvine, Calif.-based Selkirk Partners for 300,000 shares at US$7.50 per share.

Selkirk, which openly admitted Placer’s shares ranged from US$10 to $11, offered a commission-free transaction to “odd-lot” shareholders, particularly those who own fewer than 100 shares. It suggested net proceeds from the proposed sale “may be greater than from a sale through the New York Stock Exchange,” where Placer lists in the U.S.

Mining companies are cautioning their shareholders not to tender to the offers. The high number of mining companies targeted appears to be partly a reflection of investors’ dissatisfaction with how the sector has been performing.

Mini-tender offers involved a small amount of shares — usually less than 4.9% of the outstanding shares, but typically 1%. At such a small amount, those who make the tenders are exempted from the reporting requirements of the U.S. Securities and Exchange Commission (SEC).

However, the SEC has been closely monitoring the growing popularity of mini-tenders and is considering guidelines aimed at discouraging the process. In the meantime, mini-tenders remain a case of caveat vendor: let the seller beware!